Tools for clinicians to transform ideas into commercial and social value | The views expressed here are my own and are not intended to reflect the views of any other organization | (c) Andrey Ostrovsky, MD 2013

Tuesday, May 21, 2013

The healthcare financing environment is rapidly changing. The Affordable Care Act (ACA) has created a rich substrate for innovation. Although healthcare reform holds tremendous promise for patients and the entrepreneurial community, leveraging the quickly evolving opportunities can be very challenging for slow moving organizations such as payers or health delivery systems. In fact, there is a rapidly emerging gap between reimbursement incentives that are being created by the ACA and the existing business models of payers and health systems (Figure 1). Nimble startups have an unprecedented opportunity to fill those gaps to achieve entrepreneurial success and create value for patients.

Figure 1

The ACA unleashed billions of dollars to spur innovation. Many of the ACA’s provisions transform healthcare reimbursement from volume-based to value-based. Examples of such programs include the Comprehensive Primary Care Initiative, the Duals Demonstration projects, Community-based Care Transitions Projects, Pioneer ACOs, and bundled payment projects, among several others. Each of these programs directly and/or indirectly redefine incentives for healthcare. And to ensure sustainability, the ACA has provisions to grant HHS the authority to scale these interventions without Congressional approval. That, in theory, means evidence-based and not politics-based systematic reimbursement of innovations by Medicare/Medicaid that drive down costs and improve outcomes.

Although payers and health systems have enormous resources to bare to respond to these stimuli, they are generally slow to move, which opens the door for startups to rapidly discover value, validate that value, and collaborate with payers and health systems to scale that value.

In addition to moving quickly to discover value, startups can hone their value proposition by innovating in domains that payers and health systems can be used to scale. The following domains are ripe for disruption:

-Patient engagement

-Passive digital health

-Care coordination

-Health IT interoperability

-Workforce redefinition

-Standards creation

The challenge for startups in reaching their potential to provide value to payers and health systems is getting started with iterative testing of their value proposition. Getting “in the door” with payers and health systems is incredibly challenging. One possible solution to bridging the gap between the startup's value proposition and the payer or health system’s feedback on that value proposition is creating an incubator function internal to these organizations (Figure 2). Establishing a process for vetting external ideas internally (or cultivating internaly innovation through “intrapraneurs”) can help to narrow the gap between problem and solution.

Figure 2

The key to creating such a pathway is establishing a precedent. The real innovation has to happen at the payer and health system level with leadership that is forward-thinking/innovative/crazy enough to allow billion-dollar organizations to engage startups. Once the early-adopting corporations take the plunge, then a precedent will need to be set by the first guinea-pig startups to go through the process of incubation or cultivation. And finally, best practices will need to be created and applied through a dynamic process that creates a pipeline of innovation into these large institutions. And at that point, and only that point, will the Payer Business Model Gap start to narrow.